Amtech Systems, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2013; comparative period is the three months ended December 31, 2012. Amtech designs and sells equipment and related products for solar, semiconductor, and polishing markets.
Financial performance and position
- Revenue: $14.8 million, up 58% from $9.4 million. Solar and semiconductor equipment revenue increased 79% to $12.6 million; polishing supplies and equipment revenue declined 5% to $2.2 million.
- Margins and operating results: Gross profit rose to $4.5 million from $1.4 million; gross margin improved to 31% from 15%. Operating loss narrowed to $0.5 million from $4.8 million.
- Net results: Net loss attributable to Amtech was $0.8 million, or $0.08 per diluted share, versus $4.2 million, or $0.44 per share. The company recorded a $0.6 million income tax provision despite a pretax loss, compared with a $0.5 million tax benefit in the prior-year quarter.
- Cash flow: Operating activities used $6.9 million, compared with $4.6 million used a year earlier. Capital expenditures were $0.2 million. Cash and cash equivalents declined $6.9 million during the quarter to $30.3 million.
- Liquidity: Restricted cash was $4.2 million; working capital was $43.1 million and the current ratio was 2.2:1. The company reported $7.2 million of current refundable income taxes and $6.0 million of current taxes payable; it said $5.5 million of the expected Netherlands refund was received in January 2014.
- Debt and obligations: The filing does not provide a clear debt balance. Purchase obligations were $10.7 million at December 31, 2013. Total liabilities were $39.3 million and total equity was $66.8 million.
Changes and operating drivers
- Improved revenue and margins reflected higher equipment shipments, better manufacturing-capacity utilization, cost controls, and favorable product mix. Use of previously written-down inventory also benefited margins.
- Solar and semiconductor equipment segment operating income was $0.3 million, compared with a $3.2 million loss; polishing supplies segment operating income increased to $0.4 million from $0.2 million.
- SG&A declined 3% to $4.1 million. Net R&D expense declined 23% to $0.9 million as government grants increased, although gross R&D spending rose 18% to $2.9 million, primarily for ion-implanter development.
- There were no restructuring charges, versus $0.7 million in the prior-year quarter.
- Backlog was $23.3 million, compared with $14.7 million a year earlier; quarterly orders were $9.8 million versus $5.0 million. Backlog includes deferred revenue and orders that customers may delay or cancel.
Outlook, risks, and contingencies
- Management expected the solar-industry supply-demand imbalance and slow order pipeline to continue into 2014, weighing on solar equipment sales. It cited customer delays to capacity expansion and the prospect of lower solar-installation subsidies. Semiconductor customers’ equipment spending had improved.
- No quantified earnings or revenue guidance was provided. Management said available liquidity should support operations for at least the next 12 months.
- Revenue timing depends substantially on equipment shipments, installation, and customer acceptance. PECVD equipment revenue was fully deferred under the company’s new-technology recognition policy; the quarter also recorded $3.6 million of net deferred profit, versus recognition of $2.5 million of previously deferred profit a year earlier.
- Customer concentration is material: two customers represented 33% and 23% of quarterly revenue; two customers represented 40% and 16% of accounts receivable, and one customer represented 40% of backlog.
- Foreign-currency translation gains were $0.7 million. Management estimated that a 10% currency movement against its $43.1 million net investment in and advances to foreign operations could produce approximately $4.3 million of other comprehensive income or loss.
- Kingstone’s ion-implanter development agreement had received $3.6 million in government grants and required Kingstone to have $6.1 million of its project commitment in place by July 2014. Amtech stated it had no obligation or plan to fund Kingstone’s commitment. Management said ordinary-course litigation was not expected to have a material impact; no legal proceedings were listed in Part II.
- The company maintained valuation allowances on certain China and Netherlands deferred tax assets because of losses. It disclosed approximately $1.6 million of unrecognized tax benefits and $1.3 million accrued for related interest and penalties.
Important facts for investors to verify
- Whether the higher equipment shipments and backlog convert into recognized revenue and cash, particularly given customer acceptance conditions and cancellation or delay risk.
- Whether solar-market weakness persists and whether semiconductor demand and polishing-supplies growth can offset it.
- The size and timing of working-capital cash needs, including collection of receivables, customer deposits, inventory, and tax refunds.
- Customer concentration, foreign-currency exposure, and the funding and milestones of Kingstone’s ion-implanter project.
- Potential effects of tax valuation allowances and uncertain tax positions on future results and cash taxes.